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Want a house price forecast? You're dreaming

The Australian and global economies are in such turmoil due to the COVID-19 pandemic that forecasting house prices is not possible right now, HSBC's chief economist for Australia and New Zealand Paul Bloxham says.

And while Mr Bloxham, a former Reserve Bank of Australia economist, has not formally torn up the forecasts he made in January for dwelling price growth – of 5 to 9 per cent this calendar year – the shake-up that prompted the government to this week announce a wage subsidy equal to 6.5 per cent of GDP made such a forecast unlikely to happen, he said.

"There are clear risks to every aspect of our forecasts," Mr Bloxham told The Australian Financial Review.

"There is nothing that will be left untouched by the extent of the macroeconomic shock we’re faced with. To latch on to a particular number at this point is hard. But there is significant downside risk."

That may sound like cute understatement as this country and much of the world slides into wartime-like restrictions on personal movement that have the working world and their children hunkering down at home to wait for the worst of the crisis caused by the deadly virus to pass.

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But at this stage there are different dynamics buffering Australia's housing market – the source of much middle-class wealth – and only time will tell how they play out, Mr Bloxham said.

Some things, at least, are clear.

"Australia is set to have a recession and the unemployment rate is set to rise," he said.

One source of demand that has driven the prices of east coast Australia's housing stock higher is population growth. With that likely to slow – from last year's 232,100 to as low as 150,000 by one estimate – a key driver of price growth is gone.

"Migration is a key driver of population growth, which in turn supports housing demand – and with all travel banned, new migration has stopped," Mr Bloxham said.

"Without new household formation, housing demand will fall, but the housing supply remains. Before the COVID-19 shock, most estimates suggested that housing was moderately oversupplied anyway."

In addition, while many Australian homeowners are ahead on their mortgage payments, about a third of mortgages were not prepaid and these were at risk of falling behind on repayments, he said.

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Unreliable data

But at the same time, measures banks have taken to offer customers six-month loan-repayment holidays and lower rates as emergency measures in the current crisis will ease the pain felt by many home owners.

"The question is more around the medium-term outlook," Mr Bloxham said.

"At some point, the forbearance measures will be lifted. If unemployment is higher, there will be questions about how many of the repayments do present a challenge and what does that mean for the housing market."

And in any event, the likely hibernation of the housing market – as buyers remained home and auctions were unable to continue – meant the volume of transactions was likely to be so thin that price data coming out of the market could not likely be taken as reliable, he said.